The Money Management Rating theRaters Surveyhas revealed a level of acceptance by funds managers of both the importance of the ratings process and the value research houses deliver.
The participating funds managers overwhelmingly agreed that product and manager research was a necessary part of the process of reviewing a manager. They said ratings helped in both providing insights into their businesses and assisting in benchmarking their businesses against competitors.
The trigger points for funds managers in the survey were questions on ethics and integrity, accountability, disclosure, transparency and leveraging.
In analysing this year’s Rating the Raters survey responses, it is interesting to draw some comparisons from a similar survey conducted nine years earlier and published inMoney Managementin 1993.
The Pratt Report, carried out by independent researcher Tony Pratt, described his survey at the time as an opportunity for leading funds managers to vent their opinions on the power, professionalism and business practices of the major research firms.
And vent they did. The Pratt Report, based on interviews with funds managers, received damning evidence that there was indeed a growing chasm between funds managers and research houses based on the value of research and the research process itself.
At the time, Pratt described funds managers’ attitudes to research firms as ranging from “anger through frustration to resignation”.
In regards to the research houses’ power, one interviewee said, “If you’re not recommended, you won’t get any funds.”
And another: “I think they’re too powerful. They can stop the flow of business — I’ve seen it happen here.”
In response to the question on research houses’ influence on product ratings, a funds manager said:
“It’s almost restrictive trade practices. Our performance is as good as any other — they comment there are too many funds already, but that’s not good enough.”
Such comments indicate a depth to the funds managers’ dissatisfaction with research houses at that time.
When you compare these comments to the responses inThe Money ManagementRating the Raters Surveythere are a few possible explanations.
Funds managers have a greater understanding of research houses and how they conduct research, and therefore feel more satisfied.
They are more satisfied as a result of both greater understanding on their part and better service levels by research houses.
Finally, funds managers’ dissatisfaction has only got worse since 1993 and they feel so disconnected from the research process, they are somewhat indifferent to the processes and business of research houses.
So, despite a space of nine years, the chasm between funds managers and research remains. It has changed its form but the two groups have yet to meet on common ground.
